As Puerto Rico is subject to US federal law, to qualify as an exempt or “white-collar” employee, an employee must meet the requirements of the Fair Labor Standards Act (FLSA). Since Puerto Rico was exempted from the 1 January 2020 increase of the FLSA salary basis, an exempt employee must earn a minimum salary of USD455 per week, or USD23,660 per year. The employee’s compensation must not be subject to reduction because of variations in the quality or quantity of work performed. The employee’s duties must also satisfy a “duties test” to determine if they qualify as a bona fide executive, administrator, professional or outside salesperson.
Employees classified as exempt or white-collar are not entitled to overtime pay. The terms and conditions of compensation for exempt employees are typically governed by contractual agreement between the employer and the employee, rather than being statutorily established, as in the case of rank-and-file employees. Parties may negotiate a broad variety of compensation and benefits, such as, for example, health plans, stock options, incentive plans, tax equalisation, other deferred compensation, and bonuses. In line with the white-collar exemptions of the FLSA, Puerto Rico also adopted Regulation No 13 (2005), which virtually incorporated the same tests and definitions to determine exempt status.
By contrast, non-exempt or “blue-collar” employees are non-management personnel who have a right to overtime pay and meal periods, as well as a host of other statutory entitlements and protections under both federal and Puerto Rico law. Consequently, there is less flexibility to negotiate their terms and conditions of employment.
The Labour Reform Act of 2017 (Law No 4-2017) amended most of the major employment laws that apply to private-sector employees. Employees retained prior to the enactment of the law are grandfathered, according to certain specific provisions of the law. Accordingly, the changes mainly affect employees hired after the law was passed. Although Law No 41-2022 undoes many of the changes enacted by Law No 4-2017, the Fiscal Control Board’s formal position as to the same has left its enforceability in question.
In Puerto Rico, parties are free to negotiate any employment contracts they deem appropriate, so long as the arrangement is not contrary to the law, social mores or public policy. Employers may retain full-time, part-time, indefinite and temporary employees, among others.
Pursuant to Law No 80 of 30 May 1976 (Law No 80), a temporary employee is one who is retained:
Fixed-term employees are those who are retained for a specific project or a specific period. An employee will be deemed to be a bona fide fixed-term employee if the employment relationship lasts for no more than three years, including any renewals of the contract. That being said, exempt employees may contractually agree to be deemed fixed-term even if the total period of employment exceeds three years. Employers may also retain the services of independent contractors.
Employment agreements can be verbal. While written contracts have never been required for employees hired for an indefinite period, after the enactment of the Law No 4-2017, contracts for fixed-term and temporary employees can also be verbal. However, it is strongly recommended that these types of agreements be committed to writing, as there is typically a strong presumption that an employee has been retained for an indefinite period, and the employer bears the burden of proving otherwise.
All non-exempt employees are presumed to have an automatic nine-month probationary period. Exempt employees are presumed to have an automatic twelve-month probationary period. Shorter probationary periods can be negotiated. There is no need for the probationary contract to be in writing, although it is recommended that probationary periods that are different from those set forth by law be documented.
In the case of temporary employees hired through a placement agency, Puerto Rico expressly recognises the legal figure of joint employers, meaning that more than one employer may be held responsible for the terms and conditions of a particular employee.
Finally, an employer may assign employees from other jurisdictions to work in Puerto Rico for less than three years without having them deemed Puerto Rico employees, as long as they maintain an employment relationship with their foreign employer. In such cases, the legal and contractual rights and obligations shall be interpreted in accordance with the original employment agreement, including choice of law. However, the employee will still be subject to Puerto Rico law for the purposes of income tax, discrimination laws, and workplace accidents or illnesses. If no choice of law is made in the employment agreement, Puerto Rico law will apply.
According to Puerto Rico Act Number 379 of 15 May 1948 (Law No 379), which covers non-exempt (hourly) employees, eight hours of work constitutes a regular working day in Puerto Rico and 40 hours of work constitutes a workweek. Working hours exceeding these minimums must be compensated as overtime.
In general, extra hours are those hours that an employee works for their employer in excess of eight hours during the calendar day, in excess of 40 hours during any week, during a day when the establishment should remain closed to the public by law or in excess of the maximum number of working hours a day fixed in a collective bargaining agreement.
Since the enactment of the Law No 4-2017, employees who are required to perform overtime work must be compensated for each extra hour a wage rate equal to at least time and a half or double the agreed rate for regular hours. If the employer’s industry is covered by the provisions of the FLSA, the employer will be required to pay employees for extra hours at a wage rate of no less than time and a half of the rate agreed upon for regular hours for both daily and weekly overtime, except when other standards are fixed by a mandatory decree or a collective bargaining agreement. However, employees hired prior to the law’s enactment will preserve any superior benefits they enjoyed before its passing, including overtime at a rate of twice their regular pay.
Voluntary flexible work schedules of no more than ten regular hours a day in a period of four days in a workweek are also permitted, without incurring overtime liability. Any flexible work schedule arrangement can be revoked by mutual agreement of the parties, or unilaterally after one year. Employees may request flexibility as to the place of employment and working hours, and the employer is obliged to respond and/or provide alternatives to the employee’s request within 20 days.
Likewise, employers can allow employees to replace hours not worked for personal reasons during the workweek. These hours will not be considered overtime if they are replaced during the same workweek as the absence, and do not exceed 12 hours in a day, or 40 hours in a week.
Law No 379 also provides meal periods for non-exempt employees. A meal period consists of one hour but can be reduced to 30 minutes by mutual agreement in writing between the employer and the employee. The meal period for croupiers, nurses, and security guards, can be further reduced to 20 minutes. Meal periods should commence not before the conclusion of the third, nor after the commencement of the sixth, consecutive hour of work. Employees cannot be required to work more than five consecutive hours without pausing to eat. As an exception, the Secretary of Labour and Human Resources may authorise that the meal period be enjoyed between the second and the third consecutive hour of work.
The meal period shall be paid at a rate of one and a half times the base rate of pay. The meal period can be waived if the total number of hours worked does not exceed six hours in a day. Certain other provisions apply to meal periods after regular hours of work.
Day of Rest
Puerto Rico Law Number 289 of 9 April 1946 (Law No 289) provides that all non-exempt employees shall have the right to one day of rest for every six working days. Employers are prohibited from deducting from the salary of any employee the day of rest. If the employer requests employees to work on their day of rest, it is obliged to pay those employees for the hours worked on the day of rest at a rate of time and a half the wage rate agreed upon for regular working hours.
Administrators, executives, and professionals, as well as other employees or industries not covered by the FLSA or Law No 379, as amended by Law No 4-2017, are not covered by this law.
In addition, since Law No 4-2017 was enacted, employers are no longer required to pay employees a minimum of USD11.50 per hour for working on Sundays. However, commercial establishments that, prior to Law No 4-2017, were required to remain closed during Good Friday and Easter must still remain closed.
Puerto Rico’s Minimum Wage, Vacation and Sick Leave Act, Law No 180 of 27 July 1998 (Law No 180), which covers non-exempt employees, provides that the federal minimum wage law (currently USD7.25 per hour) automatically applies to all employers in Puerto Rico covered by the FLSA. However, on 21 September 2021, the Governor of Puerto Rico signed into law House Bill 338, to create the Puerto Rico Minimum Wage Act. Among other things, the Puerto Rico Minimum Wage Act amends Law No 180 to create a local minimum wage that will prevail over the federal minimum wage provided by the FLSA, so long as the local wage is greater. The Minimum Wage Act orders the creation of a Commission to Evaluate the Minimum Wage, ascribed to the Puerto Rico Department of Labour and Human Resources, which has not yet been completed at this time. Most significantly, however, the Act establishes a local minimum wage of USD10.50 per hour, which shall be implemented in successive steps:
This statute applies to all employers in Puerto Rico who are covered by the federal Fair Labor Standards Act, excluding workers in the agriculture industry, and employees of the US federal government, employees of government agencies, municipalities, as well as employees of the legislative branches of the government of the Commonwealth of Puerto Rico. The Act also excludes employees covered by a collective bargaining agreement between a union and their employer, so long as such agreement provides equal or superior benefits. The Act shall not apply to employees classified as “administrators”, “professionals”, or “executives” under Puerto Rico Regulation No 13 regarding white-collar exemptions.
Employers who are not covered by the FLSA must pay their employees at least 70% of the prevailing federal minimum wage. However, employees who have a higher salary pursuant to a mandatory decree issued by the Puerto Rico Department of Labour and Human Resources shall receive the rate of pay established therein, notwithstanding Law No 180 or the FLSA. As discussed in 1.1 Employee Status, the minimum wage for exempt employees in Puerto Rico is USD455 per week.
Any employee who is actively working for their employer but is compelled to file a claim for unpaid wages, can only claim for wages owed within the three years preceding the date the action is filed. If the employee has ceased working for the employer, the claim is limited to the three years prior to the date of termination.
Employers who violate statutory wage obligations are subject to fines and penalties. The Office of Mediation and Adjudication of the Puerto Rico Department of Labour and Human Resources has jurisdiction to entertain salary claims under Law No 180.
Since 30 June 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), has amended the FLSA to allow the Puerto Rico Governor, with the approval of the Oversight Board created by PROMESA, to set a minimum wage of no less than USD4.25 an hour for workers under the age of 25 who first became employed after the enactment of the Act, for a period of four years, or until the termination of the Oversight Board, whichever occurs first. Employers are prohibited from terminating current employees for the purpose of hiring individuals at the reduced hourly rate. Any employer engaging in such conduct will be deemed to have violated the non-retaliation provisions included in the FLSA.
However, based on the Governor’s 19 May 2021 Executive Order and the approval of the Puerto Rico Minimum Wage Act, discussed above, there appears to be little appetite to implement a wage reduction of this nature.
Pursuant to Law Number 148 of 30 June 1969 (Law No 148), Puerto Rico also provides for a Christmas bonus to employees who work 1,350 hours between October 1st and September 30th of the bonus year. For employees retained before the enactment of Law No 4-2017, the minimum number of hours worked to be eligible for the bonus is 700 hours between October 1st and September 30th of the bonus year. The bonus must be paid between November 15th and December 15th.
Employers who employ more than 20 employees within a 26-week period between October 1st and September 30th of the following year will pay a Christmas bonus of 2% of the salaries earned with a cap of USD600, while employers who employ fewer than 20 employees during the relevant period will pay a bonus of USD300. Newly hired employees will be entitled to 50% of the bonus during the first year of employment.
Forms of Payment
Under Puerto Rico Law Number 17 of 17 April 1931 (Law No 17), as amended, employers may effect payment of salaries to non-exempt employees in the form of cash, cheques, direct deposits, electronic transfers or payroll credit cards to each employee’s bank account, in payroll intervals not to exceed 15 days. Employers must obtain the employee’s prior voluntary written authorisation to make payments in direct deposit or electronic transfer transactions. When payment of wages is made by direct deposit or electronic transfer, each employee must receive a pay slip from the employer acknowledging that the payment has been deposited in the employee’s bank account and the date of the deposit. The deposit must be available to employees on their regular pay day. Salary payments can also be made to the employee at the workplace or can be paid in commercial establishments belonging to the employer. Exempt employees are not subject to this statute.
An employer that in any way affects the employment of an individual because the employee does not authorise the payment of salaries by direct deposit or electronic transfer shall be subject to fines and penalties. Employees are also permitted to file a complaint with the Secretary of Labour and Human Resources requesting the posting of a bond by the employer if it makes payments with cheques drawn against insufficient funds, or if the employer’s bank account has been closed.
Employers are not allowed to make any payroll deductions from the employee’s wages without the employee’s written authorisation. Deductions are limited to the following purposes:
Vacation and Medical Leave
In general, all non-exempt employees are required to work 130 hours to accrue vacation and sick leave. Employees retained after the enactment of Law No 4-2017 will accrue a minimum of half a day’s vacation leave per month during the first year of employment; three quarters of a day’s vacation leave from the second to the fifth year of employment; one day per month from the sixth to the 15th year of employment, and one and a quarter days of vacation leave after the 15th year of employment. Sick leave is accrued at a rate of one day per month, regardless of years of service. Employees retained prior to the enactment of Law No 4-2017 continue to accrue one and a quarter days of vacation leave and one day of medical leave per month, for each month in which the employee works at least 130 hours, regardless of years of service. Law No 180 has numerous requirements that regulate the use of vacation and sick leave. Certain mandatory decrees, which are still in effect, could provide for greater or lesser vacation and sick leave benefits. Employers may provide greater benefits if they so desire. However, it is illegal for employers to terminate and rehire or substitute current employees in order to provide inferior benefits based on Law No 4-2017’s amendments to Law No 180.
Puerto Rico law allows employees to use up to five days of accrued medical leave in connection with the illness or medical treatment of a child, parent, spouse, person of advanced age or with a disability, or under the employee’s custody or tutelage. In addition, subject to certain requirements, public and private sector employees who suffer any of the following catastrophic illnesses can receive up to six additional paid days off per year: AIDS, tuberculosis, leprosy, lupus, cystic fibrosis, cancer, haemophilia, aplastic anaemia, rheumatoid arthritis, autism, post-organ transplant complications, scleroderma, multiple sclerosis, amyotrophic lateral sclerosis (ALS) and chronic renal disease (stages three, four and five).
It is important to note that Law No 180, as amended, prohibits employers from using justified medical absences as efficiency criteria in an employee’s yearly performance evaluation. Under the law, employees are entitled to use their sick leave in such cases as is necessary and warranted. Therefore, it is a violation of that right for employers to establish an internal policy which allows them to treat justified medical absences in the same manner as unjustified or irresponsible absences, creating a negative impression of the employee when they are considered for a pay increase, a promotion, or other job-related benefits. An employer may not consider the justified use of medical leave as an unfavourable factor in an employee’s performance evaluation or take adverse action against employees for taking leave, such as reducing their work hours, reclassifying their position, or changing their shifts or schedule.
Exempt employees are not covered under Law No 180. Accordingly, the terms of their vacation and medical leave are contractually negotiated or established by employer policy.
Maternity Leave and Working Mothers
Maternity is perhaps the most protected condition covered by Puerto Rico labour laws. Under Puerto Rico Law No 3 of 13 March 1942 (Law No 3), all female employees who give birth or adopt a child under the age of five are entitled to receive 100% of their salary during the statutory eight-week maternity leave. Law No 3 applies to all employees, exempt and non-exempt. The Puerto Rico Department of Labour and Human Resources has issued regulations regarding statutory maternity leave.
Furthermore, a pregnant employee cannot be penalised for any decrease in her productivity. If discrimination is found, the prevailing employee may be awarded back pay, front pay, emotional and compensatory damages, attorney’s fees and/or reinstatement. Any award of damages must be doubled.
Puerto Rico Law No 427 of 16 December 2000 (Law No 427), requires a safe, private, and hygienic space for employees who are nursing or extracting breast milk. Breastfeeding mothers are entitled to a break of one hour for each working day, which may be divided into two 30-minute or three 20-minute breaks, for up to one year after the employee’s return from maternity leave. Mothers who work part-time, but for more than four hours a day, are entitled to a period of 20 minutes to nurse or extract breast milk. Employers who fail to comply are subject to a penalty of USD3,000.
Finally, it is worth noting that federal legislation in this area has been recently approved, specifically the Pregnant Workers Fairness Act (PWFA) and Providing Urgent Maternal Protections (PUMP) for Nursing Mothers Act, which applies in Puerto Rico and requires employers to provide reasonable accommodation to pregnant employees, as well as a reasonable amount of time and private space for nursing mothers to express milk for up to one year after childbirth.
Disability and Accidents
Puerto Rico Law No 44 of 2 July 1985, (Law No 44), was enacted a few years before the Americans with Disabilities Act (ADA) and was later amended to further align with it. Under the statute, both public and private institutions are prohibited from discriminating against persons with physical or mental disabilities. This prohibition extends to recruitment, compensation, fringe benefits, reasonable accommodation and access facilities, seniority, participation in training programmes, promotions or any other term or condition of employment.
Another local counterpart of the ADA, Law No 81 of 27 July 1996, focuses on the implementation of reasonable accommodation measures. Violations will result in fines and other remedies.
Puerto Rico’s Short Term Non-Occupational Disability Law, Law No 139 of 26 June 1968 (Law No 139, or SINOT from its initials in Spanish), provides up to one year of leave with reservation of employment for temporary disability not connected with employment, as well as certain weekly payments for up to six months. Employees can be insured through the Puerto Rico Department of Labour, through a private insurance company, or can be self-insured. Furthermore, local law provides that leave may be a form of reasonable accommodation.
As to work-related disability, Puerto Rico’s Workmen’s Accident Compensation Law, Law No 45 of 18 April 1935 (Law No 45), provides up to twelve months of leave with reservation of employment for work-related accidents or conditions. All employees must be insured for work-related accidents through the State Insurance Fund, a state monopoly created for this purpose. Failure to insure employees or late payment of the insurance premiums can result in stiff penalties. However, an insured employer will have immunity against lawsuits for work-related accidents.
For employers with 15 employees or fewer at the time of accident or disability, the employment reservation period provided by Law No 45 and Law No 139 is six months.
Puerto Rico also creates statutory protection for individuals involved in automobile accidents. The Administration for Compensation for Automobile Accidents (ACAA), a Puerto Rico public corporation, is charged with providing health services and employment reservation for victims of automobile accidents. The period of employment reservation under the ACAA is six months. In addition, Puerto Rico law provides, under specific circumstances, statutory leave for employees summoned as witnesses in criminal cases, serving as jurors, receiving treatment for substance abuse, and participating in sports-related activities.
The Family and Medical Leave Act (FMLA) applies in Puerto Rico just as in any other US state.
Employers in Puerto Rico also have an obligation to accommodate the religious practices of their employees. While this is not a source of statutory leave, employers are required to reach agreements with their employees to provide accommodations that reasonably allow them to observe their religious practices, so long as it is not unduly burdensome to do so. If the religious accommodation includes any period of leave, such leave need not be compensated.
Confidentiality and Non-disparagement
In general, there are no restrictions on well-crafted confidentiality and non-disparagement policies in Puerto Rico. However, Puerto Rico is subject to the same restrictions and limitations imposed by agencies such as the National Labour Relations Board (NLRB) to regulate employee comments on social media.
Covenants not to compete are generally enforceable in Puerto Rico, subject to certain requirements. In fact, since the enactment of Law No 4-2017, all employees have a duty of loyalty and must refrain from competing with the business activities of their employer during the course of their employment, even in the absence of a non-competition agreement.
However, non-competition agreements must be consistent with public policy. The Puerto Rico Constitution and the case law of the Puerto Rico Supreme Court establish the right of every employee to choose – and resign freely from – their employment. In the absence of a valid non-competition agreement, or an employment contract for a fixed period, any employee is free to resign and work for any other employer, including a competitor.
For a covenant not to compete to be valid in Puerto Rico, it must be made in writing, in exchange for adequate consideration, and must not impose an undue burden on the employee. The non-competition clause must be tailored to the employer’s legitimate need to protect its business in terms of duration, geographic limitation, and clients affected. Typically, a non-competition agreement must not exceed twelve months, although longer periods have been found valid for shareholders and consultants. Generally, the more parity that exists between the negotiating parties, the more likely it is that the agreement will be deemed valid.
If the non-competition clause is part of the original employment agreement, no independent consideration is required. However, if the clause is added after the individual has become employed, adequate consideration must be provided. What constitutes “adequate” consideration varies by industry, position, and by the employee’s overall compensation package.
Under general freedom of contract principles, non-solicitation of employee provisions are typically valid. Such provisions are generally included in non-competition agreements, separation agreements and settlement agreements.
There is no data protection authority or overarching law that governs information privacy in Puerto Rico; only a Citizens Advice Bureau on Information Privacy Protection within the Puerto Rico Department of Consumer Affairs (DACO from its Spanish initials), the duties and responsibilities of which are primarily advisory. Accordingly, Puerto Rico’s privacy regime is limited in scope as it lacks a uniform rule of law or structure to protect individuals’ privacy concerns. Nonetheless, the following laws relating to data privacy could also have an impact on the employment relationship:
Employment of foreign workers in Puerto Rico is governed by US immigration law. See 2.2 Contractual Relationship (Foreign Workers) for discussion of the legal and contractual rights and obligations of such workers in Puerto Rico.
All foreign employees are subject to the registration requirements of US immigration law.
Puerto Rico employers may permit their local employees to work remotely if the employer’s operations and the employee’s duties so allow. However, employers must still ensure that their employees are properly covered for workers’ compensation, short term disability and other state-required benefits. The terms under which an employee may work remotely shall be determined by the employer’s policies.
Furthermore, on 30 June 2022, in response to the pandemic-related issue of employees working remotely for out-of-state employers with no business nexus to Puerto Rico, the governor of Puerto Rico signed into law Act No 52-2022, which amended the concept of “engaged in trade or business” under the Puerto Rico Internal Revenue Code of 2011.
Under Act No 52-2022, for tax years beginning after 21 December 2022, businesses with employees working remotely from Puerto Rico will not be deemed to be “engaged in trade or business” on the island, so long as:
Act No 52-2022 further sets forth that an out-of-state employer will not be deemed to have an “economic nexus” with Puerto Rico even when
Companies not doing business in Puerto Rico should carefully consider the repercussions before allowing employees to telework from the island, as they may still be subject to other local labour and employment statutes, such as workers’ compensation and discrimination laws. There is currently legislation under consideration to correct this gap, which would specifically exempt out-of-state employers from complying with local labour and employment legislation when employees voluntarily relocate to Puerto Rico. On 22 June 2023, the Puerto Rico House of Representatives passed HB 1745, which seeks to facilitate remote work in Puerto Rico and convert Puerto Rico into the “Digital Center of the Americas”. If such legislation is signed into law, when remote employees choose to relocate to Puerto Rico, the choice of law concerning their employment will be governed by the employment contract or the laws of the state where the employee is domiciled.
Under Puerto Rico law, employers are obliged to provide vacation and sick leave to non-exempt employees, as well as comply with applicable federal laws regulating leave (as discussed in 1.5 Other Employment Terms). Employers in Puerto Rico are also obliged to provide employees with paid or unpaid leave for absences related to maternity leave, jury duty, voting, driver’s licence renewal, medical treatment and rehabilitation under the Administration for Automobile Accident Compensation (ACAA in Spanish), participation in municipal legislatures, victims of domestic violence seeking assistance, as well as representing Puerto Rico in any sport in the Olympics, Pan-American or Central-American Games, as well as regional or world championships. However, employers in Puerto Rico are not under any obligation to grant sabbatical leave to their employees for other reasons, such as professional or academic pursuits. Any such arrangements would be based on the employer’s policies and agreements reached with individual employees on a case-by-case basis.
Shared workspaces have been fairly common in Puerto Rico for some time. However, there is no legal framework governing the issue, and it is mostly regulated by employer policy. It remains to be seen whether this will be a growing trend in the future.
Puerto Rico employees in the private sector can obtain union representation pursuant to the provisions of the US National Labor Relations Act (NLRA) and the procedures of the NLRB. Employers in the airline industry are regulated by the Railway Labor Act (RLA), a US statute that covers employees in the air transportation and railway industries. Employers in the private sector, usually small employers that fall outside the scope of the NLRA, and public corporations that do business as private corporations, such as public utilities, are covered by the Puerto Rico Labour Relations Act, a statute which resembles the NLRA.
Under the NLRA, employees can organise or join a union to negotiate (with their employer) matters pertaining to wages, hours, and other terms and conditions of employment. They can also discuss matters related to union organisation and working conditions with co-workers. Moreover, employees can engage in concerted action which can include strikes and pickets, depending on the purposes of such activities. Employees have a right to union representation at investigatory interviews, as well as a right to union representation during disciplinary procedures and arbitration.
The percentage of union representation in the private sector in Puerto Rico is in single digits. Certain industries have traditionally been organised – such as the maritime industry, hotels, casinos, transportation, and hospitals – but, even in those strongholds, union representation has continued to decline.
The most active and combative union representation is presently limited to government-sponsored corporations such as the Puerto Rico Aqueduct and Sewer Authority, the State Insurance Fund, certain state-sponsored medical facilities, and public transportation.
The framework and requirements for union elections in the private sector are provided by the NLRB rules and regulations, just as in any other US state or territory.
Please refer to 6.1 Unions.
Please refer to 6.1 Unions.
Employers with unions must comply with the requirements of the applicable collective bargaining agreement, specifically the grievance and arbitration procedures, prior to implementing terminations.
Just cause for termination is required in Puerto Rico. Law No 80 of 30 May 1976 (Law No 80), which covers employees hired for an indefinite period, states that good cause for the discharge of an employee from an establishment is understood to be one of the following.
That the worker indulges in a pattern of improper or disorderly conduct.
This list is not exhaustive, as just cause refers to any reason related to the proper and normal operation of the establishment.
Wrongful Discharge Compensation
Law No 80 provides a formula for statutory indemnity in cases of wrongful discharge. For employees retained after 26 January 2017, the formula for such indemnity is three months of salary, plus two weeks for every completed year of service, capped to a maximum of nine months of salary. This formula does not apply to employees hired prior to the enactment of Law No 4-2017, who would still be entitled to claim under the prior, more beneficial indemnity formula.
For employees retained prior to the enactment of Law No 4-2017, statutory severance is calculated as follows:
In addition, a wrongfully terminated employee retained prior to the enactment of Law No 4-2017 would be entitled to a progressive indemnity equivalent to one week for each year of service if the discharge occurred within the first five years; two weeks for each year of completed service if the discharge occurred after five years, and until 15 years; and three weeks for each year of completed service if the discharge occurred after 15 years.
The indemnity shall be calculated based on the highest rate of salary earned by the employee during the three years immediately preceding their discharge. Law No 4-2017 clarifies that the term “basic salary” excludes certain benefits such as deferred compensation, income from tips that surpasses the federal minimum wage, and disability payments. Furthermore, the computation shall be based on the highest number of regular working hours of the employee during any period of 30 consecutive calendar days within the year immediately preceding the discharge. No payroll deductions, except for social security, shall be made on such an indemnity. As of the enactment of Law No 4-2017, payments under Law No 80 are tax exempt.
The Puerto Rico Department of Labour and Human Resources has issued extensive guidelines regarding the interpretation of Law No 80.
Potential Repeal of Law 80
There has been ongoing discussion regarding the derogation of Law No 80 in the context of the negotiations between the government of the Commonwealth of Puerto Rico and the Fiscal Oversight Board established by PROMESA. The Fiscal Oversight Board is strongly in favour of eliminating Law No 80 and making Puerto Rico an “at-will” jurisdiction, arguing that this will incentivise hiring and, consequently, stimulate the economy. However, this position has been met with intense resistance from the Legislative Assembly of Puerto Rico, which has now voted against repealing the statute twice. Moreover, the local government’s efforts to undo the changes implemented by Law No 4-2017 by way of passing a further labour reform, Law No 41-2022, were fruitless, as the Fiscal Control Board succeeded in its effort to have the latter statute declared null and void in federal court.
Notice Periods and Termination Procedures
There are no required notice periods under local law. However, under the Worker Adjustment and Retraining Notification Act (Warn Act), covered employers must provide affected employees, certain government entities and officers, as well as union representatives, with 60 days’ advance notice of plant closings and mass lay-offs, as such terms are defined by law.
Union-free employers are at liberty to establish reasonable procedures for progressive discipline and employment terminations. However, any internal rules, regulations and policies adopted by the employer must be provided to employees in writing. Courts in Puerto Rico have jurisdiction to determine whether an employer’s policies are reasonable and whether employment termination is justified. The burden of proof in wrongful discharge cases falls on the employer.
Employers with unions are required to comply with the terms and conditions of the applicable collective bargaining agreement prior to implementing terminations, including any internal disciplinary procedures or appeal processes for terminations that may have been adopted.
Please refer to 7.1 Grounds for Termination (Notice Periods and Termination Procedures).
Law No 80, discussed therein, establishes statutory severance for terminations without just cause. All out-of-court payments should be made in exchange for a separation or settlement agreement and full release.
Summary dismissal is not favoured in Puerto Rico. However, it is still settled that, in certain circumstances, it is warranted. Typically, summary dismissal is reserved for incidents or behaviour of a kind that would make it imprudent to await their repetition, or that lay bare a clear and undoubtable condition of character that carries with it either actual or potential grave consequences or reveals an attitude not susceptible to change. For example, summary dismissal has been upheld in cases of workplace violence, sexual harassment and falsification of employment documents or records (including providing false information on a job application).
Termination agreements are permitted in Puerto Rico. However, like any contract, they cannot contravene laws, morals, or public order. Moreover, consent to them cannot be obtained by duress or undue pressure. Releases must be supported by adequate consideration.
Under Law No 80, employees cannot prospectively waive and release their right to sue their employer for wrongful discharge in an employment contract. However, employees are permitted to settle Law No 80 claims as part of the termination process.
Regarding the protection of certain classes of employees, please refer to 8.2 Anti-discrimination.
Employees in Puerto Rico are also entitled to protection from workplace harassment (also referred to as “mobbing”), pursuant to Law No 90-2020. The term “workplace harassment” is defined as malicious conduct that is unwanted, repetitive and abusive, arbitrary, unreasonable or capricious, not related to legitimate business interests, and that infringes on constitutionally protected rights (such as the protection against attacks to the employee’s reputation or private life, or risks to the employee’s health and integrity). However, to constitute unlawful workplace harassment, the conduct in question must truly be unrelated to the employer’s legitimate business interests. Accordingly, reasonable actions directed to ensure the proper operation of the workplace will not be considered mobbing, even if they are unpleasant, unpalatable, or unpopular to employees.
Employers are required to have anti-mobbing policies in place, as well as investigate allegations of workplace harassment and take corrective measures if the allegations are substantiated. It is worthwhile noting that, while other prohibited forms of harassment require evidence that they are perpetrated by a superior towards a subordinate, such as quid-pro-quo sexual harassment, unlawful mobbing can take place by and between employees of any rank. Workplace harassment by third parties and non-employees is also prohibited. The employer shall be liable for the actions of its supervisors and other employees who engage in workplace harassment, when the employer, its agents, or its supervisors “knew or should have known” of the improper conduct, unless the employer can prove that it took immediate and appropriate action to stop the conduct. This defence is not available when it is determined that the employer itself engaged in the prohibited conduct.
Unlike other local discrimination and harassment statutes, employees must exhaust both internal remedies within the company and external remedies with the Alternate Dispute Resolution Bureau of the Judicial Branch through a mediation process as a prerequisite to filing a lawsuit in court.
Puerto Rico law also provides whistle-blower protections, discussed in 8.2 Anti-discrimination(Whistle-Blowing).
As discussed in 7.1 Grounds for Termination, just cause for termination is required under Puerto Rico law. Accordingly, any employee who believes that they have been wrongfully terminated can file a claim under Law No 80. The exclusive remedy for wrongful discharge claims is statutory severance, as calculated under Law No 80. For employees who are hired for a specific period under a written employment agreement, what constitutes adequate cause for termination shall be determined by the contract.
The employer typically bears the burden of proof in wrongful discharge cases. However, in cases where the employee claims constructive discharge, the employee bears the initial burden of proof to establish that the circumstances surrounding their resignation meet the criteria for an involuntary discharge.
In addition to the protections established by federal discrimination statutes, under Puerto Rico laws, employees are protected from discrimination based on age, race, colour, creed, sex, disability, sexual orientation, gender identity, social or national origin, social condition, political affiliation, religious ideology, authorised use of medical marijuana, being a victim or being perceived as a victim of domestic violence, sexual aggression or stalking, serving or having served in the armed forces of the United States, or holding veteran status. Employers cannot take any adverse employment action because of any of these conditions.
Specifically, under Puerto Rico Law No 100 of 30 June 1959 (Law No 100), any employer (public or private) who refuses to hire a person; discharges or discriminates against an employee regarding their salary, terms or conditions of employment; or classifies its employees in any manner which tends to deprive a person of employment opportunities or affect their status as an employee based on any of the aforementioned factors, will incur civil liability, which may consist of a sum equal to twice the amount of damages sustained by the employee, and will also be guilty of a misdemeanour. The law also provides the same penalties for any employer that discriminates because the person in question is married to another employee of the employer.
All public and private employers are also required to develop and implement a protocol to avoid and/or manage episodes of domestic violence in the workplace.
Damages and Compensation
Since 2017, compensatory and punitive damages in discrimination cases under local law are capped to the limits established by Title VII of the Civil Rights Act of 1964. Employers who have fewer than 101 employees will have a cap of USD50,000; employers who have between 101 and 200 employees have a cap of USD100,000; employers who have between 201 and 500 employees have a cap of USD200,000 and employers who have upwards of 501 employees have a cap of USD300,000. This cap also applies in cases of retaliation.
All discrimination cases under Puerto Rico law are adjudicated using a burden-shifting framework like the one employed under Title VII.
Discrimination on the Basis of Sex and Sexual Harassment
Puerto Rico Law No 69 of 6 July 1985 (Law No 69), requires strict compliance with the constitutional guarantee that no person shall be discriminated against because of sex. The main purpose of this law is to guarantee the equal right to employment for women as well as men, while prohibiting discrimination and imposing penalties for the same. The prohibition of discrimination on the basis of gender applies equally to public and private-sector employers. In furtherance of pay equality between genders, employers are also specifically prohibited from inquiring as to an employment candidate’s salary history, including salary, benefits, perquisites, and any other form or remuneration, or combination thereof.
Puerto Rico Law No 17 of 22 April 1988 (Law No 17) prohibits sexual harassment in the workplace and establishes responsibilities and penalties in connection with the same. Sexual harassment is defined as any type of undesired sexual approach, demand for sexual favours and any other verbal or physical behaviour of a sexual nature, through any means, including electronic means such as emails or the use of the internet, when one or more of the following circumstances occurs:
In cases of sexual harassment, the employer’s responsibility extends not only to its own actions, but also to the actions of its agents and supervisors, regardless of whether the employer knew, or should have known, about the illegal behaviour. Employers are required to take the following measures to maintain a workplace environment that is free of sexual harassment:
Persons responsible for acts of sexual harassment will be subject to civil liability, including a sum equal to double the amount of the damages that the action has caused the employee or job applicant, among other remedies.
On 27 September 2022, the local government passed Law No 82, which amends Puerto Rico’s Law to Prohibit Sexual Harassment and now also requires employers doing business in Puerto Rico to have in place not only a policy prohibiting sexual harassment in the workplace, but also a separate protocol for the management of situations of sexual harassment in the workplace. The protocol must include, among other thing things, a declaration that the conduct at issue is illegal; a declaration of purpose to prevent, discourage and avoid such harassment; definitions of important terms included in the protocol; examples of prohibited conduct; how to present a charge of harassment and to whom; the names, positions, and contact information of each person designated to implement and administer the protocol; as well as the specific procedures the employer will follow when a charge is made under the protocol and a copy of the complaint form for reporting charges. Employers not only have a duty to create and implement the aforementioned protocol, but also to disclose the same to all of their employees, provide them training regarding the same, and specifically advise them of their rights and resources under the law.
In order to facilitate compliance with this obligation, the Puerto Rico Department of Labour has published a template of the protocol that employers can modify according to the specific needs of their operation.
The rights of working mothers under Law No 3 are discussed in 1.5 Other Terms of Employment.
Military and Jury Service
Puerto Rico Law No 44 of 19 May 1976 forbids employers from dismissing or discriminating against an employee by reason of their absences in the performance of any military duty. Violations of this law are a felony, punishable with a fine not exceeding USD5,000 or by imprisonment for no more than three years, or both. The affected employee shall have the right to reinstatement without any loss of pay, as well as privileges and/or benefit rights.
Puerto Rico law also affords protection to employees from any action that adversely affects their employment in connection with their service as jurors or witnesses.
Puerto Rico Law No 115 of 21 December 1991 (Law No 115), provides protection for any employee who testifies or attempts to testify before any administrative, legislative or judicial forum. Law No 169 of 29 September 2014 extended this protection to internal complaints.
Employers are subject to double damages, reinstatement, back pay, benefits and attorney’s fees if any employee proves that they were the victim of adverse employment action for whistle-blowing activities covered under the law. The statute of limitations under Law No 115 is three years.
Anonymous complaint procedures are not required.
During the COVID-19 pandemic, courts in Puerto Rico began conducting proceedings, including civil trials, virtually using various platforms such as Zoom and Microsoft Teams. At this time (September 2023), although pandemic emergency measures have officially been discontinued by the local government and in-person trials and hearings have resumed, courts have continued to conduct many proceedings, such as status and settlement conferences, by remote means.
The Puerto Rico Department of Labour and Human Resources created the Office of Mediation and Adjudication (OMA) pursuant to Law No 384 of 17 September 2004. Parties can elect mediation and adjudication of their cases and other benefit claims by the OMA under Law No 80, Law No 180, and Law No 379.
The Puerto Rico Department of Labour and Human Resources also provides arbitration services. The Bureau of Conciliation and Arbitration was created to mediate in labour-management disputes, to assist parties in collective bargaining negotiations, and to provide labour arbitration services free of charge.
The Anti-discrimination Unit (ADU) is another specialised forum of the Puerto Rico Department of Labour and Human Resources. Although exhausting administrative remedies is not required under Puerto Rico employment laws, the ADU mediates and conducts informal hearings in discrimination cases under Law No 100 (general anti-discrimination), Law No 17 (sexual harassment) Law No 44 (disability), Law No 69 (sex), Law No 3 (maternity), and Law No 427 (breastfeeding).
For federal claims, agencies such as the NLRB and the Equal Employment Opportunity Commission (EEOC) have offices in Puerto Rico. Claims can be brought at federal and state levels, and class actions are available in Puerto Rico.
Pursuant to the Alternative Dispute Resolution Regulations of the Puerto Rico Supreme Court, mediation requires the consent of both parties. A party cannot be forced to mediate a case.
Pre-dispute arbitration procedure agreements are enforceable.
In discrimination or retaliation cases, the prevailing employee may be awarded back pay, front pay, emotional and compensatory damages, attorney’s fees and/or reinstatement. The award of attorneys’ fees in favour of the prevailing employee will be 15–25% of the judgment.
Puerto Rico Law No 402 of 12 May 1950 explicitly prohibits the imposition of attorney’s fees on employees who are forced to file suit against their employers under federal or local labour and employment legislation or an employment or collective bargaining agreement. However, though unusual, some courts have held that employers can be awarded attorney’s fees if it is found that the employee’s complaint was frivolous or vexatious.
The Repeal and Uncertain Fate of Law No 41-2022
From the moment the federal government implemented the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) and instituted the Fiscal Oversight & Management Board for Puerto Rico (“the Board”), the Board’s mission has been to reshape the financial and, as a consequence, employment landscape of Puerto Rico in order to incentivise investment and stimulate the economy. In the employment context, the tendency has been towards a general liberalisation of the employer-employee relationship, allowing parties to contractually agree to such terms as they see fit. The Board has broadly directed the local government to co-operate in the implementation of this vision.
Most significantly, on 26 January 2017, the Puerto Rico government passed Act No 4-2017, known as the Labour Transformation and Flexibility Act, which amended most of Puerto Rico’s labour and employment statutes and created a legal framework that was less burdensome on employers doing business in the jurisdiction. However, the statute, which reduced (and in some cases eliminated) long-standing benefits for employees, was met with strong resistance both in the public and private sector. See the Puerto Rico Trends & Developments chapter of the 2022 Employment Global Practice Guide for further details.
As a result, during the 2020 election campaign in Puerto Rico, several candidates ran on a platform that included amending Law No 4-2017, including Governor Pedro Pierluisi, who indicated that this issue would be addressed as part of his administration’s public policy. Accordingly, it was not a surprise that in the opening 2021 legislative session, there were a flurry of bills in the House intended to amend or repeal Act No 4-2017. After some back-and-forth between the legislature and the Governor, on 20 June 2022, Governor Pierluisi signed HB-1244, creating Act No 41-2022, also known as the Labour Reform Act of 2022, which had the express purpose of undoing the changes implemented by Act No 4-2017.
Since the inception of the Labour Reform Act of 2022, the obstacles and challenges to its implementation have been clear. The Board made no secret of its opposition to Act No 41-2022 and advised the government of Puerto Rico not to repeal the Labour Transformation and Flexibility Act. The Board also vowed to take legal action to stop any legislation that would negatively impact the labour market flexibility that, in its view, Puerto Rico needs, or any action that would interfere with PROMESA’s purposes.
Thus, on 30 July 2022, a few days after the effective date of the law, the Board provided the government of Puerto Rico with an economic impact analysis of Law No 41-2022 and asked the government to suspend voluntarily such law no later than 4 August 2022. Failure to act on the part of the government would result in legal action to nullify Law No 41-2022. The government, however, ignored the Board’s warning and decided to go full speed ahead with the implementation of the law.
The Board made good on its promise. On 1 September 2022, it filed a complaint in federal court with two counts to repeal Law No 41-2022. On 29 September 2022, the government answered and challenged the jurisdiction of the court. On the same day, the Board moved for summary judgment. Accordingly, on 3 March 2023, after full consideration of the parties’ arguments and positions, the court denied the government’s motion, holding that it may exercise jurisdiction, and granted in part and denied in part the Board’s summary judgment motion.
Granting in part the Board’s summary judgment motion was sufficient for the court to find that such entity was entitled as a matter of law to the relief sought. Consequently, the court held that Law No 41-2022 was null ab initio. This means that the law and all actions taken to implement it are null and void from the beginning. In other words, Law No 41-2022 never had any legal effect.
Although the case is currently on appeal, the decision of the court validates and gives new life to Law No 4-2017. However, the effects on employers of this new development could still be significant. In the past few months, the government of Puerto Rico has taken the stand that all employers in the jurisdiction must comply with the provisions and amendments of Law No 41-2022. Thus, many employers have modified personnel handbooks, offered employment under the new rules for probationary periods, calculated hours and paid Christmas bonuses according to the new guidelines of the Puerto Rico Department of Labour, and accrued vacation for part-time employees according to the new rules, to mention just a few. Others are perhaps litigating or have settled cases under the changes brought by Law No 41-2022. Now the question turns out to be what to do next. Changing rules again for the existing workforce could have unforeseeable effects and could result in staff turnover and difficulties in attracting good candidates.
Since the decision, the government has been adamant that it will continue its efforts to reverse the changes brought by Law No 4-2017, while the Board has maintained its course promoting deregulation and contractual freedom. The outcome of this ongoing clash of ideals remains to be seen.